Are fluctuating temperatures reshaping the natural gas market? It’s a relevant question as we’ve witnessed natural gas prices slipping on the back of above-average U.S. temperatures, indicating a warm winter season ahead. On December 19, 2023, January Nymex natural gas futures declined by 0.44%, painting a picture of how weather patterns directly influence energy demands.
The Commodity Weather Group forecasted a mostly warmer Christmas period in the U.S., with potential record highs in the Midwest. Such predictions have consequences for natural gas consumption. When the mercury rises, the demand for heating fuel typically falls, leading to a drop in natural gas prices. Maxar Technologies and the U.S. Climate Prediction Center echoed similar sentiments, with the latter indicating a more than 55% chance that the current El Nino pattern would persist into March, maintaining above-average temperatures.
This warming trend is not without precedent. Last Wednesday, natural gas prices hit a six-month low, exacerbated by an early winter of above-normal temperatures in the U.S. that reduced heating demand, leaving supplies robust. This supply and demand dynamic is evident in the latest statistics: Lower-48 state gas production was recorded at 103.6 billion cubic feet per day, up by 3.8% year-over-year, while demand dropped substantially by 11.9% year-over-year to 97.4 billion cubic feet per day.
The export market shows a brighter spot amid domestic pressures. LNG net flows to U.S. export terminals were up 4.5% week-over-week, reaching 15.0 billion cubic feet per day. These figures suggest that international demand remains strong, which could provide some cushion for producers in the U.S. gas market.
Domestically, an uptick in electricity output supports natural gas demand from utility providers. The Edison Electric Institute reported a slight year-over-year increase in total U.S. electricity output, though cumulative output over 52 weeks slightly fell. Such nuanced data points underscore the interconnectedness of energy markets and the electric power sector.
However, even with these delicate balances, last Thursday’s weekly EIA report showed that natural gas inventories had decreased by 55 billion cubic feet, aligning with expectations but still below the five-year average draw. Inventories were reported to be 7.4% higher year-over-year and 7.6% above the five-year seasonal average – a signal of ample supplies.
In contrast, Europe’s gas storage levels were at 89% full as of December 17, surpassing the five-year seasonal average. This could indicate less urgent need for U.S. LNG exports to Europe, especially if mild weather persists there as well.
Though the number of active U.S. natural gas drilling rigs remained unchanged in mid
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